A week ago, as Britain prepared to go to the polls, it was a scene that few
voters, let alone David Cameron and Nick Clegg, could ever have imagined.

But on Wednesday, in the sun-dappled Downing Street garden, the leaders of the Conservative and Liberal Democrat parties stood side by side to unveil formally the country’s first coalition government for 65 years.

The two men declared that they were now “colleagues not rivals”, repeatedly pledging to act “together” in a five-year partnership.

Mr Cameron claimed it as a “historic and seismic shift” in the political landscape, while Mr Clegg promised a “radical, reforming government” which would also provide “reassurance and stability at a time of great uncertainty”.

The new Prime Minister and his deputy fought the election as bitter enemies, but on Wednesday they appeared at ease at their first joint appearance as coalition leaders, joking, laughing and praising each other.

Mr Cameron, at his first press conference as Prime Minister, said he had opted for a full-blown coalition because, in the wake of an indecisive election result, the other options – such as a minority Tory government – were unsatisfactory and “uninspiring”.

He said that he and Mr Clegg would govern with “one clear purpose” – to give strong leadership.

“Our Liberal-Conservative government will take Britain in a historic new direction, a direction of hope and unity, conviction and common purpose,” the Prime Minister said.

“I’m delighted to be standing here with the new Deputy Prime Minister, the two of us together leading this historic Liberal Democrat-Conservative administration.”

Some MPs in both parties remain sceptical that the coalition can last, despite the goodwill on show on Wednesday.

Tory supporters and some MPs will be concerned by its planned tax policies, the full details of which emerged on Wednesday in the power-sharing document.

The extremely popular Conservative plan to raise inheritance tax thresholds has been shelved and the coalition will have to find £17 billion to fund the Lib Dem policy of taking those earning under £10,000 out of tax.

That will mean rises in capital gains tax – which will affect second home owners and stock market investors – and workers possibly losing out from rises in national insurance. The coalition’s plans to reduce the deficit could lead to further tax rises, such as increased VAT, the Institute for Fiscal Studies said last night.

Mr Clegg predicted that there would be “bumps” along the way, but insisted that it was a “government that will last”.

Six days after the general election, the final Cabinet positions were announced last night. They included five posts for Lib Dems and unexpected roles for Theresa May and Iain Duncan Smith. Mr Cameron said: “Today we are not just announcing a new government, and new ministers. We are announcing a new politics.

“A new politics where the national interest is more important than party interest. Where co-operation wins out over confrontation, where compromise, give and take, reasonable, civilised, grown-up behaviour is not a sign of weakness but of strength.

“One of the biggest problems of the last few years has been a chronic short-termism in government.

“With this coalition agreement we’ve got five years to think about the long term and to make the big decisions about our country’s future. And that is the true significance of this new coalition.” The personal chemistry between the two men was evident throughout the appearance. Mr Cameron was asked about a remark he had once made when he was asked for a joke and had replied: “Nick Clegg.” The Prime Minister looked embarrassed and Mr Clegg said “Right, I’m off” then pretended to walk away.

Having released the full details of the coalition deal, the Prime Minister said: “It will be an administration united behind three key principles: freedom, fairness and responsibility. And it will be an administration united behind one key purpose: to give our country the strong, stable and decisive leadership we need.”

He added: “Starting with Nick as Deputy Prime Minister, Liberal Democrats will be represented at every level of this government. This is a sign of the strength and depth of this coalition and our sincere determination to work together constructively to make this coalition work in the national interest.

“We have a shared agenda, and a shared resolve, to tackle the challenges that Britain faces.”

Mr Clegg said: “Until today we were rivals and now we are colleagues and that says a lot about the new politics”.

The changing political reality was reflected in the Cabinet posts. As well as Mr Clegg’s role, David Laws is Chief Secretary to the Treasury, Danny Alexander Scottish Secretary, Chris Huhne Energy and Climate Secretary and Vince Cable Business Secretary.

The key Tory appointments include a surprise with Theresa May becoming Home Secretary. Iain Duncan Smith, the former party leader, has the task of forcing through radical welfare reform as Work and Pensions Secretary.

Mr Cameron has kept his closest colleagues in the key positions. Michael Gove is Education Secretary, George Osborne Chancellor, and William Hague Foreign Secretary.

And as the Labour Party adjusted to its first day out of government for 13 years, David Miliband became the first to announce he was standing for leader following Gordon Brown’s resignation.

Under the terms of the coalition deal, there will be fixed term parliaments with the next election scheduled for May 7, 2015. But, crucially, there is a mechanism to allow parliament to be dissolved, triggering an election, if 55 per cent of MPs agree.

The Lib Dems dropped opposition to replacing Trident and have agreed to an immigration cap. Labour plans for a third runway at Heathrow will be shelved. But Mr Cameron has given way on his promise to raise the threshold for inheritance tax and has instead accepted the Lib Dem commitment to raising the income tax threshold to £10,000.

Inheritance tax was a flagship policy whose popularity when it was announced in 2007 was credited with forcing Gordon Brown to halt his plans for a general election that year.

In another concession, millions of workers – but not employers – will have to pay the full National Insurance rise of one per cent next year, a Labour legacy. However, the Treasury insists lower paid workers will be compensated by a cut in income tax.

The middle classes will also be concerned at a proposal to raise capital gains tax.

Jeremy Hunt, the new Culture Secretary, was one of the first to talk about the “very surreal” coalition arrangements.

He told Sky News that only last week he had been having “a pretty big old fight” with his Lib Dem opponent in his Surrey seat.